Renal erythropoietin-producing cells (REPCs) remain in the kidneys of patients with chronic kidney disease, but these cells do not produce sufficient erythropoietin in response to hypoxic stimuli. Treatment with HIF stabilizers rescues erythropoietin production in these cells, but the mechanisms underlying the decreased response of REPCs in fibrotic kidneys to anemic stimulation remain elusive. Here, we show that fibroblast-like FOXD1⁺ progenitor-derived kidney pericytes, which are characterized by the expression of α1 type I collagen and PDGFRβ, produce erythropoietin through HIF2α regulation but that production is repressed when these cells differentiate into myofibroblasts. DNA methyltransferases and erythropoietin hypermethylation are upregulated in myofibroblasts. Exposure of myofibroblasts to nanomolar concentrations of the demethylating agent 5-azacytidine increased basal expression and hypoxic induction of erythropoietin. Mechanistically, the profibrotic factor TGF-β1 induced hypermethylation and repression of erythropoietin in pericytes; these effects were prevented by 5-azacytidine treatment. These findings shed light on the molecular mechanisms underlying erythropoietin repression in kidney myofibroblasts and demonstrate that clinically relevant, nontoxic doses of 5-azacytidine can restore erythropoietin production and ameliorate anemia in the setting of kidney fibrosis in mice.